Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.

Tuesday, 23 October 2012

Tear up government debt held by central banks?

Four articles have
appeared recently about whether government debt held by central banks should be
torn up. See here,here,here and here. (h/t to Mike Norman). What took those
article writers so long? I advocated the idea last Febuary here.

Non-peer reviewed (or only lightly peer reviewed) publications. The coloured clickable links below are EITHER the title of the work, OR a very short summary (where I think a short summary conveys more than the title).

i) The above is not a complete list in that earlier versions of some papers have been omitted. For a more complete list see here, and “browse by author” (top of left hand column).

ii) 7 deals with a wide range of alleged reasons for government borrowing, including Keynsian borrow and spend. 6 is an updated version of the "anti-Keynes" arguments in 7. 5 is an updated version of 1, which in turn is an updated version of 4.

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Bits and bobs.

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The Swiss Sovereign Money movement.

The bank subsidy no one mentions.

I can see the point of making accounts at a country’s central bank available to all, and in having that run on block chain / crypto lines (if that’s the most efficient way of operating those accounts). Accounts with the central bank / government have essentially been available to Brits for decades in the form of accounts at National Savings and Investments. Block chain / crypto could make that more efficient.But what’s the point of an OFFICIAL crypto currency where the units are liable to quaduple in value (like Bitcoin) and then crash?

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Study puts the value of the Too Big To Fail subsidy for large Canadian banks at around $1.6billion a year for each bank. And what do the regulators and their cronies in the bank industry do? Mumble into their beards, look the other way, and try to sweep the whole thing under the carpet. (hat tip to Stephanie Schulte)________

The first two sentences of Simon Wren-Lewis’s latest article (15th March) made me laugh:

"I was not going to write anything about the non-event of Hammond’s Spring statement, in part because I confess I am tired of writing about the Conservative party’s hopeless macroeconomic policy. It is like being forced to second mark all the fails from a first year economics exam."________

Larry Kudlow is Trump’s new economic advisor. In Dec. 2007 just before the worst recession since the Great Depression, Kudlow said: “There’s no recession coming. The pessimistas were wrong. It’s not going to happen...The Bush boom is alive and well.” Well that bodes well doesn’t it?

But all is not lost. Cheer up! Trump normally sacks those he has appointed a month after appointing them.....:-) ________

Simon Wren-Lewis (Oxford economics prof) does another article in which he expresses interest in MMT.________

It is precisely the fact that private banks are allowed to create or print money that causes bank failures.

Money is a short term liability of a bank. So if banks can create money, they can engage in “borrow short and lend long”, which is what causes bank failures. But that risky method of money creation is totally unnecessary because central banks can supply the economy with whatever amount of money is needed to bring full employment, and all without the above attendant risk.________

Mark Carney, governor of the Bank of England is not impressed by crypto currencies.________

The Fed implemented QE, which is supposed to have a stimulatory effect, at the same time as paying interest on reserves, which has the opposite effect, i.e. a deflationary effect. Unless I’m much mistaken, that equals schizophrenia.________

Nice article in the Financial Times today entitled “George Osborne austerity target is hit…”. The FT seems enthusiastic about the “austerity target” having been hit. I quite agree. I’m looking forward to women being sent down coal mines, young boys being sent up chimneys to clean them, and the re-introduction of Victorian slums (ho ho).

More seriously, the article shows no understanding of Keynes's point that the deficit / surplus needs to be whatever brings full employment without too much inflation. I.e. deficits are not inherently undesirable, and (contrary to the FT's suggestions) surpluses are not inherently desirable._________

Long time ago, oil companies knew that global warming would change the climate, and adjusted the design of their oil rigs and pipe-lines to suit. They then denied the existence of global warming. Don’t you just love it?________

Wall Street crooks manage to roll back stricter regulation and return to the good old "heads we win, tails the taxpayer loses" arrangement. Meanwhile politicians are way too dumb to know what's going on, and anyway their pockets will have been stuffed with wads of dollar bills to make sure they “see sense”.________

Total fines and out of court settlements paid by US banks (since the 2007 crisis I assume) now stands at $243bn.________

Laugh of the day: Mark Carney tells bankers they should not aim to earn loads of money but should aim to “promote……prosperity in the wider society”. ________

Sarah Bedford of the New Economics Foundation claims output of immigrants in the UK is £17million per day. Least that’s what she SEEMS to be saying: it’s not actually 100% clear what she's saying. Anyway assuming my interpretation of her work is right then…. let’s import the entire population of China: then the "output of immigrants" would be a HUNDRED TIMES more!!!!________

I do like Stephanie Kelton’s MMT colouring book. Filling in the colours should be a compulsory for all those with mental ages below three - i.e. all those under three, and all politicians over the age of three -….:-)________

90% of Euro banknotes issued in Germany are never spent: they’re just hoarded!!!!________

Thinking aloud….free banking (advocated by George Selgin and others) comes to the same thing as full reserve banking, seems to me. Reason is that under free banking there is no deposit insurance, thus deposits at banks are essentially equity: so called “depositors” stand to lose their shirts just like shareholders. At the same time, under free banking, depositors who want total safety are presumably free to deposit money at state run savings banks like National Savings and Investments in the UK. And that is effectively full reserve banking: loans are funded via equity, while no risks whatever are taken with deposits that are supposed to be totally safe.________

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MUSGRAVE'S LAW SOLVES THE FOLLOWING PROBLEM.

The problem. Deficits and / or national debts allegedly need reducing. The conventional wisdom is that they are reduced by raising taxes and / or cutting government spending, which in turn produces the money with which to repay the debt. But raised taxes or spending cuts destroy jobs: exactly what we don’t want. A quandary.

The solution. The national debt can be reduced at any speed and without austerity as follows. Buy the debt back, obtaining the necessary funds from two sources: A, printing money, and B, increasing tax and/or reduced government spending. A is inflationary and B is deflationary. A and B can be altered to give almost any outcome desired. For example for a faster rate of buy back, apply more of A and B. Or for more deflation while buying back, apply more of B relative to A